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PPC Analysis with Porter’s Five Forces

This is the second post in a series entitled: “5 Analysis Tools: A Conceptual Look at PPC.” This series will focus on utilizing these five tools to help you develop and manage a strong paid search advertising strategy.

Porter’s Five Forces is the next analysis tool to add to your PPC toolbox.

Porter’s Five Forces Method is used to determine the competitive forces at work in a given business situation. It goes beyond just looking at your direct competitors but at other forces at work in your industry (“The Five Competitive Forces that Shape Strategy”).

These forces are supplier power, buyer power, competitive rivalry, threat of substitution, and threat of new entry (“Porter Five Forces Analysis”).

Porter's Five Forces Model

The question to ask yourself in using this tool is: Who has the power? (“Porter’s Five Forces”).

Supplier Power: The Impact on PPC Profits

How easy is it for suppliers to drive up prices? Do you have many suppliers to choose from? Can you easily change from one supplier to the next? Is it cheap to change suppliers? If so, then you have the power to keep your costs low.

If production costs increase this could impact the effectiveness of your PPC advertising. Holding all other costs and your CPAs constant this increase will put the squeeze on your margins. So what once was profitable may not be so anymore.

Buyer Power: Know Who They Are and What They Want

A similar question here is how easy can buyers in your market drive prices down? Can buyers easily switch from buying from you to buying your competitors?

Are there a large numbers of buyers who could potentially purchase from you? How different is your offering than your competitors?

Determining whether or not you have the power in this situation can have an impact on your PPC strategy. If the buyer has the power than it’s important to know who they are and what they want (this should be a high priority even if they don’t have the power- it’s just good marketing).

What are they searching for? Is your ad text compelling and does it offer value to them? Are they ready to buy or are they searching for more information?

If the potential buyers you’re targeting aren’t buying, but researching, this could lead traffic that doesn’t convert (yet). If you have a tight budget you should first focus on those keywords that have purchase intent.

Purchase intent keywords may include terms such as “buy” or “purchase.” However they may they may not. In this case you could add negative keywords as “how to,” “info,” or “reviews,” to filter out the traffic that is not ready to convert.

If you have room to expand you should try targeting keywords further up in the funnel. You should also consider setting up a re-marketing advertising campaign to target users who came but didn’t buy.

Competitive Rivalry: PPC Bidding Wars

How many competitors are advertising on the same keywords you want to target? Is high competition driving CPCs through the rough? Are your ads, and the offers in those ads, different enough from your competitors that it would compel buyers to choose you over your competition?

If competition is high you may want to target more long-tail keywords, or keywords in a different vertical for that matter.

Threat of Substitution: Focus Keyword Targeting

Are there other options out there? Can users substitute your product or service with another?

For example, let’s say you offer remote computer repair and support. The buyers you may be targeting can pay to have a professional technician clean their computer, remove viruses etc.. Or they can substitute any number of downloadable products (many of which are free) instead.

If you’re in a similar situation you may want to promote your top-notch customer service or the professional prowess of your technicians in your ad text (as well as backing this up with customer testimonials and trust symbols on your landing pages). You may want to find keywords that reflect the intent of people looking for what you offer (i.e. live technician verses downloadable software).

Threat of New Entry: Leverage Your Brand Awareness

How easy is it for more competitors to enter the market? Are there significant barriers to entry? What advantages do you have? What resources can you leverage? How big is your advertising budget?

If the barriers to entry are low this my be the time you take advantage of advertising on your brand terms- leverage the awareness that you have already established in the industry.

PPC Strategy Takeaways

There are many factors to consider, too many to include in this post. Just remember, in using this analysis tool to establish or adjust your PPC strategy, it’s all about who has the power and what influence that’s going to have on your paid online advertising.

Post 1: PPC Market Analysis with PEST

Post 3: S.W.O.T. Analysis of Your PPC Advertising Strategy

Sources

“The Five Competitive Forces that Shape Strategy.” Harvard Business Review. N.p., n.d. Web. 01 Apr. 2013.
“Porter Five Forces Analysis.” Wikipedia. Wikimedia Foundation, 26 Mar. 2013. Web. 01 Apr. 2013.
“Porter’s Five Forces.” Mind Tools New Articles RSS. N.p., n.d. Web. 01 Apr. 2013.